Briefings

Charterers face liability for oil pollution from vessels under new Australian federal legislation

Commodities traders chartering vessels which travel through waters subject to Australian federal law should be aware that alongside the master and vessel owner, slot, voyage, time and demise charterers all now face potential strict liability in the event of discharge of oil from a vessel.

Previously, if there was a discharge of oil or oily mixture into the sea, only the owner and master of a vessel committed an offence under the Protection of the Sea (Prevention of Pollution from Ships) Act 1983 (Cth) (PSPPSA). On 5 December 2011, the PSPPSA was amended to:

Expand the list of persons who may be charged with an offence to include “charterers”.

Increase the maximum penalty from AUD55,000 to AUD2.2 million for individuals and from AUD275,000 to AUD11 million for corporations.

There are limited defences, including where oil escapes “in consequence of non-intentional damage to the ship or its equipment, and all reasonable precautions were taken after the occurrence of the damage or the discovery of the discharge...”.

However, this defence is limited because the definition of “non-intentional damage” is very narrow. Non-intentional excludes damage caused by the mere negligence of a master or owner (even if carried out without intent); deterioration resulting from failure to maintain ship or equipment; and defects that develop during the normal operation of ship or equipment.

It appears therefore that in Australia a “charterer” of any kind can now be held strictly liable for oil discharge from a chartered vessel, irrespective of whether they have any control or influence over the operation of the vessel, or any direct involvement in the event causing a discharge – for example following a collision resulting from the negligence of both masters.

There is some doubt as to whether the legislators intended to make all classes of charterer strictly liable for oil pollution. However, it is possible that Courts may apply a broad interpretation to the term “charterer” in the absence of any apparent legislative intent to restrict the term to those, such as demise charterers, who exercise control over how a vessel is operated and who might reasonably be considered to carry the same responsibility as vessel owners and masters.

Additionally, charterers should be aware that amendments to the Navigation Act 1912 (Cth) create a new regime where:

The master of a vessel is subject to new obligations not to negligently or recklessly operate a vessel in a manner that causes pollution to the marine environment or to negligently or recklessly fail to prevent such pollution.

In certain circumstances, a person can be penalised as an accessory to a breach of these new obligations. Those circumstances include where a person “has been directly or indirectly knowingly concerned or a party to” the breach. This could include charterers.

The maximum penalty for an aggravated breach (one involving serious harm to the environment), or for being an accessory to an aggravated breach, is AUD660,000 for individuals and AUD3.3 million for corporations.

Although this new legislation is yet to be tested, traders in the business of chartering vessels to load or discharge in Australian ports should be actively considering what additional protection they can negotiate into their charters by way of indemnities from vessel owners in the event that charterers are prosecuted and held strictly liable for oil pollution. They should also consider obtaining additional insurance cover.